PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. COURT OF reaction, plaintiffs filed against PBCom Civil Case No.
against PBCom Civil Case No. R-21700 in the RTC of
APPEALS and THE SPOUSES ALEJANDRO and AMPARO
CASAFRANCA, respondents.
DECISION
DAVIDE, JR., J:
This petition for review on certiorari seeks: (1) a modification of the decision
of 29 April 1994 of the Court of Appeals in CA-G.R. CV No. 38332 [1] affirming in
toto the 20 April 1992 ruling of the Regional Trial Court (RTC) of Cebu, Branch
16, in Civil Case No. CEB-6779;[2] and (2) a review of the appellate courts
resolution of 4 January 1995[3] denying the petitioners Motion for Partial
reconsideration[4] of the aforementioned decision.
The sole issue in this case is whether, in the foreclosure of a real estate
mortgage, the penalties stipulated in two promissory notes secured by the
mortgage may be charged against the mortgagors as part of the sums secured,
although the mortgage contract does not mention the said penalties.
The Court of Appeals adopted the trial courts findings of facts, to wit:
The following antecedental facts are supported by the pleadings and evidence on
record: Plaintiff spouses Alejandro and Amparo Casafranca, used to be the
owners of Lot 802-B-2-B-2-F-1 of the subdivision plan Psd-698545, located
in Cebu City and covered by TCT No. 32769 (Exh A). On 3 December 1976 they
sold the lot to Carlos Po who paid part of the agreed price. The latter, after
securing a title in his name (TCT No. 66446), mortgaged the lot to the Philippine
Bank of Communications (PBCom for short) to secure a loan of P330,000 (Exh
B). It appears that in a civil action that ensued between them, plaintiff spouses
obtained a favorable judgment against Carlos Po (Exh C). Later, in an auction
sale to satisfy Carlos Pos judgment obligation, plaintiff spouses acquired the
aforesaid lot and a Certificate of Sale was executed in their favor (Exh D).
Meanwhile, under date of 9 September 1980 PBCom applied for extrajudicial
foreclosure of the mortgage executed by Carlos Po (Exh E), and in the
succeeding auction sale held on 4 November 1980, it acquired the lot at its
winning bid of P1,006,540.56. The corresponding Certificate of Sale was then
executed in its favor (Exh F). It appears further that sometime in 1981 plaintiff
Amparo Casafranca who had stepped into the shoes of mortgagor Carlos Po by
virtue of the auction sale in her favor (Exh D) offered to redeem the property from
PBCom by tendering to its manager, Isidore Falek, a check in the amount of
P500,000 which, in her estimate, would be sufficient to settle the account of
Carlos Po. PBCom did not accept the check as it insisted that any such
redemption should be at the price it acquired the lot in the auction sale. In
Cebu for nullification of the foreclosure and auction sale (Exh M). In a judgment
which became final and executory on 17 September 1986 (Exh H) the Court set
aside the extrajudicial foreclosure and auction sale and declared that the
obligation secured by the mortgage executed by Carlos Po was only P330,000
plus stipulated interest and charges (Exh G). Subsequently, in a letter dated 4
December 1986 PBCom advised plaintiff spouses to pay the sum of P884,281.38
purportedly representing Carlos Pos principal account of P330,000, interest and
charges thereon, attorneys fee[s] and realty taxes which it paid for the lot (Exh. I).
Plaintiffs, however, did not agree with said Statement of Account and since the
account remained unpaid, PBCom again applied for extrajudicial foreclosure of
mortgage (Exh J), which culminated in an auction sale of the lot on 2 April 1987,
during which it was sold to Natalie Limchio for P1,184,000 (Exh L).
On 6 April 1988 plaintiffs commenced the present action to nullify the auction
sale in favor of Natalie Limchio. It is alleged in the complaint that the second
foreclosure was void as it was based on a bloated account. Plaintiffs further
alleged that PBCom refused to turn over the correct amount of residue after
paying off the mortgage and costs of the sale. Upon plaintiffs application, the
Court issued on 7 April 1988 a TRO enjoining defendant sheriffs from transferring
the title of the lot in favor of defendant Natalie Limchio and the latter, from taking
possession of the lot. This was followed by a preliminary injunctive writ which
was issued after hearing and upon plaintiffs filing of a bond. However, before the
pre-trial conference could be held, plaintiffs signified their intention to pursue only
their alternative demand for the residue or balance of the proceeds of the auction
sale less the correct outstanding account which was secured by the mortgage.
For this purpose they filed an amended complaint only against PBCom (pp. 296-
305, rollo) which was admitted, in which they pray for recovery of the sum of
P625,724.90 as residue after paying off the outstanding account [to] the tune of
P558,275.80, realty taxes paid by PBCom and costs of the foreclosure
proceeding. Hence, what is left for the Court to ascertain is the true or correct
account of Carlos Po as of the auction sale on 2 April 1987 after which, the
determination of the residue would follow. . .[5]
As to the amounts due the parties, the trial court computed them as follows:
The mortgage contract (Exh B) explicitly provides for interest of Twelve per cent
(12%) per annum or at such higher rate or rates as may be fixed by the
MORTGAGEE from time to time, and shall be payable at the end of every month
or otherwise, as the MORTGAGEE may elect and, if not so paid, shall be added
to, and become part of, the principal and shall earn interest at the same rate as
the principal. It is then evident that the parties agreed to capitalize the interest
due and unpaid, which as added principal, shall earn new interest. Herein lies the
discrepancy in the computation respectively submitted by plaintiffs (pp. 190-191;
204-209, Rollo) and PBCom (pp. 181-183, Rollo), for while the former assessed
only conventional or simple interest, the latter computed compound interest
conformable to the mortgage contract. In this connection, the Court finds
PBComs computation of interest to be in accordance with the contractual
stipulations of the parties. It may be stressed that the increase in the rate of
interest from 12% to 14% as of 1 December 1979 is authorized in the mortgage
contract itself as sanctioned by CB Circular No. 705 dated 1 December 1979.
PBCom is further entitled to reimbursement for realty taxes it paid for the lot. But
of course, penalties and charges are not due for want of stipulation in the
mortgage contract.
To recapitulate, the principal loan obtained by Carlos Po (now succeeded by
plaintiffs) on 15 December 1976 was P330,000. Interest thereon for the first year
at 12% per annum was retained or deducted from the proceeds of the loan. For
the next two (2) years or from 25 December 1977 to 30 November 1979,
compound interests earned at the same rate reached P77,660. And then from 1
December 1979 to 2 April 1987 (date of auction sale) the rate of interest was
raised to 14% per annum, as authorized in the mortgage contract. At such rate,
compound interests for said period would be in the sum of P343,805. Adding
both interest earnings to the principal obligation, the total account would then
be P751,465. Additionally, the mortgage contract provides for attorneys fee[s]
equivalent to 10% of the amounts due. Hence, the sum of P75,146.50 in the
concept of attorneys fee[s] would raise the account to P826,611.50. Finally, the
amount of P83,028.18 representing realty taxes paid by PBCom for the lot,
inclusive of interest, which must be reimbursed, will bring the grand total of the
account to P909,639.68.
On the other hand, the publication and other expenses incurred in the foreclosure
and auction sale [to] the tune of P707 should be deducted from the amount of
P1,184,000 which Natalie Limchio paid for the lot, leaving net proceeds of
P1,183,293. Subtracting therefrom the total account due to PBCom, the residue
would be P273,653.32, which must be delivered to plaintiffs.[6]
In the light of the above, the trial court thus ruled:
WHEREFORE, foregoing premises considered, judgment is hereby rendered in
favor of plaintiffs Alejandro and Amparo Casafranca for the sum of P273,653.32
representing the residue or balance of the proceeds of the auction sale
conducted on 2 April 1987 after deducting therefrom publication expenses and
paying off the total account due to defendant Philippine Bank of
Communications, and ordering the latter to pay unto plaintiffs the aforesaid
amount.
SO ORDERED.[7]
Both parties appealed from the above judgment to the Court of Appeals.
The petitioner questioned the lower courts failure to include in its computation the
penalty stipulated in the aforementioned promissory notes. On the other hand,
the private respondents advanced that: (1) the interest on the sum due to the
petitioner should have stopped running on 31 July 1981; (2) the lower court
should have allowed twelve percent (12%) interest per annum on the amount
awarded to the private respondents from 3 April 1987 until the obligation was fully
paid; and (3) the lower court should have awarded the private respondents moral
and exemplary damages, attorneys fees, and litigation expenses.
The Court of Appeals affirmed the decision of the trial court in toto and
subsequently denied the parties separate motions for reconsideration.
The petitioner and the private respondents then instituted with this Court
separate petitions for certiorari under Rule 45 of the Rules of Court. While that of
the petitioner was docketed as G.R. No. 118552 (this case), that of the private
respondents was docketed as G.R. No. 118809 and assigned to the Second
Division. However, the two actions were not consolidated.
The private respondents in this case filed their Comment[8] to the petition as
required in the resolution of 8 February 1995.[9]
On 13 March 1995, the Second Division issued a resolution
which dismissed G.R. No. 118809, thus:
[F]or failure to persuasively demonstrate any reversible error in the
challenged judgment of the Fourth Division of the Court of Appeals
promulgated on April 29, 1994 - affirming in toto that of the Regional
Trial Court of Cebu rendered by Judge (now Court of Appeals Justice)
Godardo A. Jacinto on April 20, 1992 (Civil Case No. CEB-6779) - it
appearing on the contrary, that both judgments correctly appreciated
the evidence and applied the relevant legal provisions in ruling,
essentially, that there had been no valid tender of payment by
petitioners of the amount of the mortgage liability burdening the
property in question, and that the computation of the amount rightly
due said petitioners had been correctly made in accordance with the
law applicable to the case (Act No. 3135, as amended). Moreover, the
record discloses no important and special reason for the exercise by
this Court of its discretionary power of review in this case.[10]
On 9 May 1995, this Court received the private respondents
Manifestation[11] drawing our attention to this resolution.
On 23 August 1995, we gave due course to the petition [12] and required the
parties to submit their respective memoranda, which they subsequently did. The
private respondents contended that [a]ctually there are no more issues left for
this Honorable Court to decide because all the issues in controversy in this case
has [sic] already been decided with finality by the Second Division of the
Supreme Court in G.R. No. 118809.[13] To which, the petitioner replied[14] that the
G.R. No. 118809 resolution dispensed with only those issues raised therein by
the private respondents and did not touch on the questions raised in this case.
 The petition is not impressed with merit.
The two promissory notes in question, signed by Carlos Po,[15] are similarly
worded and their pertinent provisions read:
For value received, I/we jointly and severally, promise to pay the Philippine Bank
of Communications, at its office in the City of Cebu, Philippines the sum of
THREE HUNDRED THOUSAND PESOS (P300,000.00), Philippine Currency,
together with interest thereon at the rate of TWELVE % per annum until paid,
which interest rate the Bank may at any time without notice, raise within the limits
allowed by law, and I/we also agree to pay, jointly and solidarily 12% per annum
penalty charge, by way of liquidated damages should this note be unpaid or is
not renewed on due date.
xxxxxxxxx
Should it become necessary to collect this note through an attorney-at-law, I/we
hereby expressly agree to pay, jointly and severally, ten per cent (10%) of the
total amount due on this note as attorneys fees which in no case shall be less
than P 100.00 exclusive of all costs and fees allowed by law stipulated in the
contract of real estate mortgage if any there be.
[16]
while the mortgage contract provides in part:
This mortgage is given as security for the payment to the MORTGAGEE on
demand or at maturity, as the case may be, of all promissory notes, letters of
credit, trust receipts, bills of exchange, drafts, overdrafts and all other obligations
of every kind already incurred or which hereafter may be incurred by the
MORTGAGOR(S) and Pos All Electrical Supply either as principal debtor(s) or as
surety(ies) or in any other capacity, including discounts of Chinese and other
drafts, bills of exchange, promissory notes, even without any further
endorsements by the Mortgagor(s), said property or properties to stand security
for the payment of the said obligations to the fullest extent and for all that it is (or
they are) worth, to the extent of THREE HUNDRED THIRTY THOUSAND
PESOS (P330,003.00) Philippine Currency.
xxxxxxxxx
This mortgage shall be subject to the following conditions, to wit:
the penalties stipulated in the promissory notes. However, the petitioner insists
FIRST: The interest on the obligations secured by this mortgage shall
be computed at the rate of Twelve per cent (12%) per annum or at
such other or higher rate or rates as may be fixed by the
MORTGAGEE from time to time, and shall be payable at the end
of every month or otherwise, as the MORTGAGEE may elect and
if not so paid, shall be added to, and become part of, the principal
and shall earn interest at the same rate as the principal.
xxxxxxxxx
EIGHTH: The MORTGAGOR(S) shall, during the existence of this
mortgage, promptly pay when due all taxes or assessments of
every kind that may be levied upon the property or properties
hereby mortgaged and deliver the corresponding tax receipts to
the MORTGAGEE,.. . In case of failure on the part of the
MORTGAGOR(S) to comply with the provisions of this condition,
the MORTGAGEE may and is hereby authorized to pay such
taxes or assessments and to have the buildings insured; and any
sum or sums so spent by the MORTGAGEE shall be fully secured
hereby and be subject to the terms hereof. .
xxxxxxxxx
ELEVENTH: The expenses incurred in the drafting, acknowledgment
and the registration of this mortgage and of its cancellation, shall
be for the account of, and shall be paid by, the MORTGAGOR(S).
TWELFTH: Should the MORTGAGEE find it necessary to resort to the
courts in order to collect any amount which may be due, the
interest thereon or the expenses incurred on account of the
matters enumerated in the previous paragraphs, or should the
MORTGAGEE in any manner and for any reason be involved in
litigation on account of the property or properties mortgaged, or
should foreclosure proceedings be instituted in accordance with
the fourth condition hereof or should the MORTGAGOR(S)
encumber the property or properties hereby mortgaged with a
second mortgage without the written consent of the
MORTGAGEE, the MORTGAGEE shall be allowed a sum
equivalent to Ten Per Centum (10%) of all the amounts due, but in
no case less than THIRTY THREE THOUSAND PESOS as
attorneys fees, said amount to be considered part of the principal
sum hereby secured, this mortgage answering for its payment
accordingly.
We immediately discern that the mortgage contract does not at all mention
that the penalties are covered by the following provision of the mortgage
contract:
This mortgage is given as security for the payment to the MORTGAGEE on
demand or at maturity, as the case may be, of all promissory notes, letters of
credit, trust receipts, bills of exchange, drafts, overdrafts and all other obligations
of every kind already incurred or which hereafter may be incurred. . .
The petitioners insistence is based on the supposed rule:
[T]hat the determination of the mortgage debt would not be limited on
the mortgage contract itself if from the face thereof, it is apparent that
other obligations are also intended to be secured.
To bolster its argument, the petitioner relies on the cases represented
by Mojica vs. Court of Appeals[17] which held:
It has long been settled by a long line of decisions that mortgages to secure
future advancements are valid and legal contracts; that the amounts named as
consideration in said contract do not limit the amount for which the mortgage may
stand as security if from the four corners of the instrument the intent to secure
future and other indebtedness can be gathered.[18]
The Court is unconvinced for the cases relied upon by the petitioner are
inapplicable. The doctrine first laid down in Lim Julian vs. Lutero[19] pertains only
to mortgages securing future advancements.
The petitioner would not have been misled into thinking otherwise had it
properly quoted Mojica in its petition. The following explanation is helpful to
distinguish future advancements from the loan in the case at bench:
It is not uncommon that persons enter into a contract whereby they draw sums of
money from their creditors, usually banks, from time to time, and as security
therefor execute a mortgage on their property. Such contracts are sometimes
executed for an account smaller or larger than that actually borrowed. Thus, it
may appear in the contract that the loan secured by the mortgage is only for
P10,000 when by reason of advancements made by the creditor to the debtor the
amount ultimately drawn and borrowed is P20,000. Under these circumstances it
is inequitable to consider that the mortgage can be foreclosed only for the
amount of P 10,000. Indeed, no bank or creditor would be willing to make such
advancements which are in excess of the amount stipulated if the payment
thereof is not secured . . .[20]
The obligation in this case was not a series of indeterminate sums incurred
over a period of time, but two specific amounts procured in a single instance.
Thus, the inapplicability of Lim Julian. Instead, what applies here is the general
rule that an action to foreclose a mortgage must be limited to the amount
mentioned in the mortgage.[21]
Aside from the foregoing, other factors militate against the petitioners
stance.
The mortgage provision relied upon by the petitioner is known in American
jurisprudence as a dragnet clause, which is specifically phrased to subsume all
debts of past or future origin. Such clauses are carefully scrutinized and strictly
construed.[22]
The mortgage contract is also one of adhesion as it was prepared solely by
the petitioner and the only participation of the other party was the affixing of his
signature or adhesion thereto. Being a contract of adhesion, the mortgage is to
be strictly construed against the petitioner, the party which prepared the
agreement. [23]
A reading, not only of the earlier quoted provision, but of the entire
mortgage contract yields no mention of penalty charges. [24] Construing this
silence strictly against the petitioner, it can fairly be concluded that the petitioner
did not intend to include the penalties on the promissory notes in the secured
amount. This explains the finding by the trial court, as affirmed by the Court of
Appeals, that penalties and charges are not due for want of stipulation in the
mortgage contract. [25]
Indeed, a mortgage must sufficiently describe the debt sought to be
secured, which description must not be such as to mislead or deceive, and an
obligation is not secured by a mortgage unless it comes fairly within the terms of
the mortgage.[26] In this case, the mortgage contract provides that it secures
notes and other evidences of indebtedness. Under the rule of ejusdem generis,
[27]
where a description of things of a particular class or kind is accompanied by
words of a generic character, the generic words will usually be limited to things of
a kindred nature with those particularly enumerated. [28] A penalty charge does
not belong to the species of obligations enumerated in the mortgage, hence, the
said contract cannot be understood to secure the penalty.
There is also sufficient authority to declare that any ambiguity in a contract
whose terms are susceptible of different interpretations must be read against the
party who drafted it.[29]
A mortgage and a note secured by it are deemed parts of one transaction
and are construed together,[30] thus, an ambiguity is created when the notes
provide for the payment of a penalty but the mortgage contract does not.
Construing the ambiguity against the petitioner, it follows that no penalty was
intended to be covered by the mortgage. The mortgage contract consisted of
three pages with no less than seventeen conditions in fine print; it included
provisions for interest and attorneys fees similar to those in the promissory notes;
and it even provided for the payment of taxes and insurance charges. Plainly. the
petitioner can be as specific as it wants to be, yet it simply did not specify nor
even allude to, that the penalty in the promissory notes would be secured by the
mortgage. This can then only be interpreted to mean that the petitioner had no
design of including the penalty in the amount secured.
It should also be noted that the private respondents consistently excluded
penalty charges in their computation of the amount due to the petitioner,[31] while
the petitioner seemed indecisive in including the said charges.
In its Manifestation[32] of 14 May 1988 before the trial court, the petitioner
computed the penalty charge as follows:
Penalty charge on the principal
amount of P330,000.00 from
Dec. 25, 1977 to April 2, 1987
at the rate of 8% per annum . . . . . . . . . . . . . . . . . . . . . . (P)248,233.33
The promissory notes provided for a 12% per annum penalty,[33] not eight
percent (8%). The petitioner explained this discrepancy in its
Memorandum[34] submitted to the trial court, claiming:
On the contrary, the banks computation of the actual amount of the
mortgage debt should be upheld. In fact, the bank was lenient on the spouses in
computing the amount of the debt. For instance, the rate of charges stipulated is
12% per annum.. . Yet the bank computed the charges at a much lesser rate . . .
thereby lessening the actual amount of the mortgage debt.[35]
The petitioner, however, included in its Offer of Exhibits :[36]
14. EXHIBIT 14- Promissory Note No. 3838 dated 25 October 1977.
14-A - Stipulation on penalty/bank charges.
PURPOSE:
. 3) It is stipulated that PBCom could impose penalty charges of 12% per annum;
and 4) PBCom was liberal on plaintiffs as it did not impose the full extent of the
stipulated charges.
Far then from being a display of lenience or liberality, the above
circumstances evince the petitioners uncertainty as to whether penalty charges
were actually due it. In fact, in a statement of account [37] signed by the petitioners
Senior Vice-President, Isidore Falek, there was no mention of a penalty charge,
although there was an entry stating:
Interest:
xxxxxxxxx
8% Bank charges P248,233.33
Furthermore, the promissory notes are clear that the penalty shall be at
12% per annum, neither more nor less. Thus, when the petitioner claims that
under the same notes it could impose, as in fact it did, the lower penalty of 8% -
contrary to what was covenanted - the petitioner only reveals that it is wont to
stipulate what it does not mean. The private respondent then should not be
faulted for the petitioners imperfection, and the latter must bear the
consequences of its failings.
It is interesting to note that the petition in this case did not include a
computation of the sum due as penalty which is the very matter in dispute. The
petitioner merely pegged its claim at 12% per annum on the principal amount of
P330,000.00 computed from 1977,[38] which was likewise a departure from the
8% interest rate which it insisted upon during trial.
After interpreting the mortgage contract strictly against the petitioner,
considering the intention of the parties as evidenced by their various pleadings
and assertions, the inescapable conclusion is that the mortgage contract did not
authorize the petitioner to include in the secured amount the penalty stipulated in
the promissory notes. The mortgage contract did not contain a trace of the said
penalty and, proceeding by the rule that an action to foreclose a mortgage must
be limited to the amount mentioned in the mortgage, such penalty can not be
recovered on the foreclosure of the mortgage.
WHEREFORE, finding no reversible error on the part of respondent Court
of Appeals, its challenged decision of 29 April 1994 in CA-G.R. CV No. 38332 is
hereby AFFIRMED in toto.
Costs against the petitioner.
SO ORDERED.